Investors' eyes may turn to next week's key macroeconomic indicators from the EU, particularly Germany, the region's largest economy.
Tuesday 21.02. 08:30 GMT, Germany Manufacturing Purchasing Managers Index (PMI) February
The German Purchasing Managers' Index provides insight into the construction industry's activity level as reported by purchasing managers. This measure provides an understanding of the state of the German construction industry, as it is assumed that purchasing managers have access to first-hand data on the performance of their companies.
A reading above 50 indicates expansion, while a reading below 50 indicates contraction. The last time the German manufacturing PMI was above 50 was in June 2022, and the preliminary reading for February 2023 is forecast to be 47.9. Falling factory activity has been linked to lower orders amid weaker demand from both domestic and foreign customers, especially Chinese, due to high stocks, elevated prices and slowing investment activity.
A higher-than-expected reading could be bullish for the EUR, while a lower-than-expected reading could be bearish for the EUR.
Impact: EUR
Tuesday 21.02. 10:00 GMT, Germany ZEW Economic Sentiment February
ZEW Economic Sentiment is one of the leading economic indicators of Germany. It is created based on interviewing experts from banks and other sectors about their expectations regarding interest rates, inflation rates, exchange rates, stock markets and other measures, such as the economic development of the world's major economies, in order to develop a sentiment for the German economy for the next six months.
The ZEW Indicator of Economic Sentiment is calculated by comparing the number of experts with positive versus negative sentiment. For example, if 30% hold positive sentiment, 20% have neutral sentiment, and 50% hold negative sentiment,then the ZEW index would result in -20%.
January's ZEW Economic Sentiment was positive for the first time since February 2022, suggesting that German experts may be turning away from their negative sentiment. If the February 2023 data are also positive, this could confirm the above statement. However, it would be a better-than-expected surprise as the current forecast for ZEW Economic Sentiment this month is -15%.
A positive or less negative result than the forecast could be seen as bullish for the EUR, while a lower (more negative) result could be seen as bearish for the EUR.
Impact: EUR
Wednesday 07:00 GMT, German CPI (YoY) (January)
While the German Manufacturing PMI and ZEW Economic Sentiment will provide the first indicators of German economic strength, the CPI later in the week will show whether the ECB's hawkish policy is succeeding in the fight against inflation.
The CPI measures the change in prices paid by consumers for a given basket of goods and services over a specified period. This information shows changes compared to a year ago. The CPI is the main measure of inflation - a higher index means higher inflation.
The preliminary data for January inflation showed a slight increase in inflation from December 2022 (8.7% versus 8.6%), showing that inflationary pressure may not be over. Economists are suggesting that Germany's broad governmental support schemes may be extending the inflationary pressure, although at a lower level.
Higher-than-expected data may have a bullish impact on the EUR and a bearish impact on the stock market, while lower-than-expected data may have a bearish effect on the EUR and a bullish impact on the stock market.
Impact: EUR, DAX
Thursday 10:00 GMT EU CPI (YoY) (January)
The preliminary result of the EU CPI data for January fell to 8.5% from 9.2% in the previous month, despite the 1% rise in German inflation. Possibly, the higher German data may be the reason why the EU CPI for January is expected to be 9.2%, 70 bp higher than the preliminary figure.
The inflation outlook for the euro area and Germany appears to be influenced by two opposing factors. On the one hand, lower-than-forecast energy prices may push down inflation faster than previously thought. On the other hand, the pass-through pressure of energy and commodities inflation to production costs is not yet over, keeping the overall inflation high. Furthermore, as the geopolitical situation in Europe is not improving, the ongoing price negotiations within the agricultural sector may result in higher-than-expected prices giving an additional boost to the inflation numbers.
Higher-than-expected data may have a bullish impact on the EUR and a bearish impact on the stock market, while lower-than-expected data may have a bearish effect on the EUR and a bullish impact on the stock market.
Impact: EUR, DAX, STOXX
Stocks to watch
Walmart (WMT) announcing its earnings results for the quarter ending on 01/2023. Forecast: 1.51. Positive earnings surprise in 8 out of the last 10 reports. Time: Tuesday, February 21, before the market opens.
Home Depot (HD) announcing its earnings results for the quarter ending on 01/2023. Forecast: 3.29. Positive earnings surprise in 10 out of the last 10 reports. Time: Tuesday, February 21, before the market opens.
NVIDIA (NVDA) announcing its earnings results for the quarter ending on 01/2023. Forecast: 0.8102. Positive earnings surprise in 9 out of the last 10 reports. Time: Wednesday, February 22, after the market closes.
Alibaba (BABA) announcing its earnings results for the quarter ending on 12/2022. Forecast: 16.63. Positive earnings surprise in 8 out of the last 10 reports. Time: Thursday, February 23, before the market opens.
Dell Technologies (DELL) announcing its earnings results for the quarter ending on 01/2023. Forecast: 1.65. Positive earnings surprise in 9 out of the last 10 reports. Time: Friday, February 24, 21:30 GMT.
Santa Zvaigzne-Sproge, CFA, Head of Investment Advice Department at Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement, or investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.